Lord Jones of Birmingham, who was trade minister from 2007 to 2008, said the UK could create a "win-win" situation by following the example of other Western countries and dictating how aid is spent.

The Government's spending review last week confirmed that in line with international commitments the Government will increase overseas aid to 0.7% of gross national income (GNI) by 2013.

Lord Jones asked at question time in the House of Lords: "Where does the value for money exist in public expenditure when we constantly untie our overseas aid at a time when Japan and America and Germany and France do not?

"At a time when we could have a win-win of increasing the overseas aid budget, helping nations that need our wealth and yet can create jobs at home and tax from profits at home rather than doing what we are doing, which is giving the money without any custodianship and therefore creating jobs in Japan and France and America just by giving taxpayers' money and no control."

Treasury minister Lord Sassoon replied: "We have maintained overseas aid expenditure in order to meet our commitment of 0.7% of GNI from 2013.

"But of course, in that context, we must make sure the money is well spent so a new independent commission on aid impact will assess all ODA spending and the Department for International Development will in particular protect all UK aid from corruption by assessing risks and using safeguards to prevent the misuse of funds."